China Perspectives, February 2013

Jumping Chinas Great Food Wall

by David Wolf
Chinas convenience food industry is undergoing rapid change. Nearly four decades after the first
Kentucky Fried Chicken opened at the south end of Tiananmen Square in Beijing, Chinese consumers
are now spoiled for choices. Not only are KFC, McDonalds, Subway, 7-Eleven, and Starbucks building
store networks that cover the nation, relative latecomers like Burger King, Yoshinoya, and Singapores
Bread Talk are also making inroads into this increasingly competitive market.
But for each of the major convenience brands that have succeeded in China, there are two (or more) that
have entered the market only to have their hopes for billions of new customers mercilessly dashed.
Wendys, Jack-in-the-Box, Krispy Kreme, Dunkin Donuts, Nathans, TCBY, A&W, Popeyes, Delifrance,
and Taco Bell all arrived with great fanfare, only to disappear. Others, like Kenny Rogers Roasters, Auntie
Annies, Mrs. Fields, Dairy Queen, Fatburger, and Orange Julius are all struggling with a tiny toehold in
the market.
What stymied these companies was not the litany of market entry barriers faced by foreign companies in
most other industries, but operational, structural, and, most important, communications mistakes that in
retrospect could have been easily avoided. As recent news has proven, the most successful companies
are not immune to missteps. KFC, which forms the heart of YUM Brands legendary success in China,
has mishandled a communications crisis that now threatens not only its China business, but the health of
its business worldwide.
While a full recounting of the successes and failures of each of the companies could fill a book, there are
lessons from the history of the fast-food industry in China that can guide communicators serving
multinational food brands.
1. Treat franchisee development as a communications challenge. Attracting the right franchisees and
master franchisees is the first and most important communications challenge food giants face in China.
Finding qualified franchisees with not only capital but also operational sophistication, marketing acumen,
local knowledge, and the dedication to make their stores successful is surprisingly difficult in China. Given
that two-dozen foreign franchisors and a growing number of domestic brands are all competing for the
same candidates, the challenge can be daunting. The only way to compete is with a well-designed
franchisee campaign in advance of market entry. Subway has been the leader of this effort, and its stores
have excelled as a result.
2. Target early adopters. For a nation with a remarkable variety of cuisines, Chinese consumers are
remarkably timid when it comes to adopting new fast food brands and categories. The answer is patience
and wise marketing, and the first step is identifying and targeting early adopters. The most fertile ground
for cultivating the customers that will drive early business and word-of-mouth are the larger cities
populated with expatriates and with sea turtles, Chinese who have studied or worked in the franchisors
home market and have returned with a taste for the product. Retaining a customer already earned is
easier than bringing in new ones. Find those hidden customers among the Chinese population, and make
them your evangelists. Starbucks placed its initial stores in Beijing near the diplomatic quarter and the
headquarters of major multinationals. Expecting to open three stores its first year, it opened nineteen,
including a stand-alone store on the grounds of the U.S. Embassy. Yoshinoya established its first stores
in neighborhoods with Japanese families, and then expanded from there.

3. Go guerrilla. Expensive advertising campaigns and even nationwide PR efforts represent wasted effort
when a company is only opening a handful of stores in one city. Initial campaigns should be local, should
emphasize unpaid media, and seek to develop buzz that will generate traffic. Once your initial citywide
efforts have paid off and are generating pull for more franchises in the area, refocus efforts on a local
campaign designed to build repeat business from patrons living or working in immediate proximity to the
store. Yoshinoya has built its base by offering samples and coupons to passers-by.
4. Market for the franchisees. Because few franchisees will have marketing experience, until a
franchisor has built a large base of franchisees, brands should expect to have to build and maintain their
own marketing teams in China alongside those of master franchisees. Not only will this ensure the quality
and consistency of marketing efforts, it will also ensure that those efforts will be run as efficiently and
effectively as possible. Even after franchising began over a decade ago, McDonalds has continued to
guide marketing, PR, and advertising throughout China.
5. Invest in proactive communications resources. In addition to running PR and marketing campaigns
to drive awareness and sales, communications teams should also monitor traditional and social media for
potential issues, and should be able to mobilize quickly and professionally in the event that an issue
comes to the surface. There will always be problems in China: restaurant managers who take short-cuts;
vendor-related food quality scares; Consumer Day complaints that are picked up nationally; and the
occasional politically-motivated backlash against foreign brands. Being prepared for these issues means
having a highly-qualified, experienced, and senior communications executive in-country, and not relying
on a relatively junior but earnest media relations manager.
6. Finally, Dont Forget HR. As important as the franchisees are, local convenience food brands face
constant challenges with staffing. As the labor supply peaks in China, franchisees will find themselves
increasingly challenged to staff their stores. Human resources marketing must be constant, creative, and
fully integrated with all PR and marketing efforts. Once managers start having to settle for unsuitable
workers just to staff locations, the decline has begun. Both Starbucks and McDonalds have managed to
attract and retain higher-quality staff as a result of aggressive recruiting PR that integrated with internal
HR activities.
Building these lessons into PR plans for expansion into China is essential. Equally essential is that in
order to make these steps effective, senior communications professionals must be integrated into the
planning process for a China expansion early on. This will ensure that these steps are not simply added
onto the process, but that the lessons of past successes (and failures) in Chinas fast food industry are
integrated into everything the company does and says in the worlds largest market.
David Wolf is Managing Director of Allison+Partners Global China Practice.